When Sarah Dodds received a letter from Bristol city council demanding £3,000 in unpaid council tax, she assumed there had been a mistake. However, things got worse when she called to find out what was going on. The council, she was told, was accusing her of fraudulently claiming the 25% council tax discount given to those living alone. It wanted its money, backdated to 2002, and there was apparently no appeal.

Her "crime" was allowing her estranged son to have his bank statements and other letters sent to her home. By doing so, the semi-retired civil servant has become caught up in a campaign adopted by councils across the country to reduce single-person discount fraud, which is estimated to be costing around £100m a year.

Guardian Money has learned that a growing number of local authorities are handing over lists of residents receiving the discount to credit reference companies so they can grade each according to the potential risk of fraud.

If you claim the 25% discount and allow anyone else to have a financial link with your home, which might include having bank or credit card statements sent there, you can expect a letter asking whether you are entitled to the discount, typically worth around £300 a year. It appears you are particularly likely to receive a letter if you have a student living with you. Full-time students on qualifying courses and student nurses are among those disregarded for council tax purposes.

"My son and I are virtually estranged and I do not know where he lives," Dodds says. "He sometimes stays with his father, the rest of the time he couch surfs. He turns up occasionally to pick up his mail. Apart from that, our paths rarely cross." She has told Bristol council this, but staff are adamant she must pay or tell them where her son lives. "I am unable to do this. I have tried to get a message to him but to no joy," she says.

Dodds used to work for the Department for Work and Pensions, and part of her job involved trying to catch those committing benefit fraud. She regularly had to make surprise visits to claimants' homes to establish whether other people were also living there. "I've suggested to the council that it can send someone round to check I live alone but it has declined. Anyone visiting would soon establish that my son doesn't live here. I feel the council is bullying me. Faced with this debt, of course, I would tell the council where my son lives if I could. It won't listen," she says.

The action taken by Bristol and other local authorities is prompted in part by the Audit Commission, which has highlighted that councils are losing as much as £100m a year to single-person discount fraud. Last month it said councils had detected more than £22m of false claims for student and single-person council tax discounts.

Bruno Rost, a spokesman for credit reference agency Experian, which conducts checks for local authorities, says this has become a significant part of the company's business. "We take the council's list of residents claiming the discount, cross-reference it against our databases and then grade each one according to the potential risk of fraud." He says Experian is looking for evidence of financial activity by people other than those who claim to be living alone – such as evidence of shared bank accounts or utility bills.

Experian promotes a "three-letter approach" to be used when a council suspects a householder is wrongly claiming the discount. A first letter makes them aware of the circumstances in which the discount can be claimed. A second asks householders whether they believe they should be receiving it, and in a third letter the council says it believes the householder may not be entitled to the discount.

"Since we started working in this area in 2006-07 we have saved local authority clients around £100m. This is money that can go back into frontline services," Rost says.

In October, Rushmoor borough council, which covers Aldershot and Farnborough in Hampshire, warned its residents that it was tackling the issue alongside all other councils in the county. The exercise is being carried out by a company called Northgate Information Solutions. Residents who receive a letter asking for further details are required to complete a form and return it to Northgate.

Peter Wood, a spokesman for Bristol city council, refused to discuss Dodds's case in detail, and declined to say what appeal options were open to Bristol residents caught up in her situation.

In a statement, he said: "To resolve situations where customers claim they are still entitled to a discount, we would request evidence of the present address of any named third party in order to support their claim. This evidence must be in the form of an official document. It is important to note that financial data held by credit agencies does not include addresses used purely for the delivery of post. The financial data relates to addresses where individuals live, or where they say they live."

He said that since the council started the review, it had removed discounts to the total value of £650,000. "Savings in excess of £1m are expected. Only a very small number have been backdated as far back as 2002," he added.

Experian's website was more forthcoming. It says if you are no longer linked to a person who is registered to your address, you should contact it and explain the situation. "If you are no longer connected, we will be able to break the link between you," it says.